The timely mailing/timely filing rule of Sec. 7502 — known as the mailbox rule — should be extended to electronically filed returns and payments, the AICPA said in a letter to two U.S. senators who introduced a bill addressing the issue.
Sens. Marsha Blackburn, R-Tenn., and Catherine Cortez Masto, D-Nev., introduced the Electronic Communication Uniformity Act, S. 1338, on April 27. The bill would amend Sec. 7502(c) to apply the mailbox rule to both documents and payments that are electronically submitted to the IRS. Under the amended statute, electronically submitted tax payments and documents would be treated as timely if submitted on or before the applicable deadline.
The senators introduced the bill in response to the raising of the issue by National Taxpayer Advocate Erin Collins in her 2023 Purple Book, which compiles legislative recommendations to strengthen taxpayer rights and improve tax administration.
"Your bill would provide welcome relief and solve a problem that taxpayers have been faced with, i.e., incurring penalties through no fault of their own because they believed their filings or payments were timely submitted through an electronic platform," said the AICPA letter, signed by Jan Lewis, CPA, chair of the AICPA Tax Executive Committee. "This legislation would provide equity by treating similarly situated taxpayers similarly. It would also improve tax administration by eliminating IRS notices assessing unnecessary penalties when the taxpayer or practitioner electronically submits a tax return by the deadline regardless of when the IRS processes it."
The mailbox rule currently applies to payments and documents sent to the IRS through traditional mail. This means that payments or tax returns mailed to the IRS postmarked on or before the due date are considered timely even if the IRS receives and processes them later.
However, payments or tax returns transmitted to the IRS electronically may be considered late if the IRS processes them after the deadline, even if they were transmitted on or before the deadline.
In her report posted in December 2022, Collins recommended amending Sec. 7502(c) to allow tax payments or documents electronically submitted before midnight on the date due to be treated as submitted on the day they are transmitted regardless of whether the IRS receives or processes them that day.
The Purple Book explains that while Treasury has the authority under Sec. 7502(c)(2) to apply the mailbox rule to electronic filings, Treasury does not currently have the authority to apply the mailbox rule to electronic payments. Thus, legislation is necessary to address this issue.
Furthermore, Collins noted that even as the IRS encourages taxpayers to file and pay electronically, it also punishes them by not treating them the same. For example, the Electronic Federal Tax Payment System (EFTPS) website tells taxpayers to schedule electronic payments by 8 p.m. ET on the day before the actual due date to ensure that they are received timely by the IRS.
"This disparity in the treatment of mailed and electronically submitted payments makes little sense," the Purple Book reads. "As compared with a mailed check, an electronic payment is received more quickly, is cheaper to process, and eliminates the risk that a mailed check will be lost or misplaced. Yet, rather than encouraging taxpayers to use EFTPS, an earlier deadline serves as a deterrent."
— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.